Media & Marketing and Sports Business

By George: Speedway owner gains clout in Formula One negotiations

July 4, 2005

There may be a silver lining to the cloud that descended over Indianapolis Motor Speedway at last month's U.S. Grand Prix: President Tony George has emerged unscathed from a public relations standpoint and has never had more control over the Formula One race his track hosts.

Michelin, the French tire maker for the 14 cars that withdrew from the race because of tire-safety concerns, has offered to refund fans' ticket costs. That's a $10 million to $12 million expense the Speedway won't have to incur. Meanwhile, F1 czar Bernie Ecclestone and F1's sanctioning body, FIA, are fighting over who's to blame for the fiasco.

It's a far cry from images of angry race fans storming George's 16th Street office after the June 19 race. George's bargaining position with F1 appears stronger than ever. Ecclestone, sometimes referred to by detractors as the "poison dwarf" for ruling F1 with an iron fist and little regard for track owners, lost clout when he was unable to convince the seven balking teams to compete at Indianapolis.

Whether the USGP will return is an open question, according to IMS officials, who expect to make a decision within two weeks. George and Ecclestone had been on the verge of signing a long-term deal to keep the USGP in Indianapolis for five to 10 years, sources said. But this year's race changed those discussions.

"If F1 officials aren't careful, the events at Indianapolis have the potential to become the pin that was pulled on the hand grenade that blows up F1," said Derek Daly, a locally based motorsports analyst and broadcaster who also raced in Formula One from 1979 to 1982.

Whether the June 19 tectonic shift reduces F1 to rubble isn't clear, but it is certain George will seek more favorable terms if the Grand Prix is to return to IMS.

For starters, he likely will want a reduced sanctioning fee-reportedly now near $15 million. George, sources said, also will work to get a bigger piece of TV revenue for an event the Times of London reported is watched by 400 million people worldwide. The IMS' TV take now is minuscule, leaving the Speedway to rely almost solely on ticket and suite revenue, concession sales, parking and a cut from souvenir sales.

"I think this event makes money, and there's certainly prestige in hosting F1 along with NASCAR and the Indianapolis 500," said Tim Frost, president of Frost Motorsports, a Chicago-based motorsports business consultancy. "But by itself, given Formula One sanctioning fees, it probably doesn't net much. I'm sure Tony George will look to fortify his position."

Though George was plenty steamed after seven teams refused to race, Frost thinks the Speedway president still has incentive to bring the race back, especially if he can win contract concessions.

"[George] needs to host this race to capitalize on his investment and maximize his facility's international exposure," Frost said. "There's no greater worldwide motorsports platform than F1."

In 1999, George spent an estimated $65 million to build the 2.6-mile road course and special F1 garages and to install multiple large video screens to show cars on the serpentine course.

IMS spokesman Ron Green said Speedway officials are already planning for next year's race, though no agreement has been signed. But first, he said, the ticket rebates must be settled. While Michelin said it will pay the full cost, Green said the Speedway will have to process the refunds.

"There's no template or model for this," Green said. "It will be a monumental undertaking. It will be the biggest ticket refund program in the history of sports and entertainment."

If there is a 2006 race, Green said, marketing will have to be tailored to lure fans back.

This year's debacle happened at a critical time for the USGP. After attracting nearly 220,000 for its inaugural run in 2000, the USGP saw attendance plummet three straight years, settling at about 100,000. But IMS officials reported a rebound in 2004 and another increase this year, to about 120,000.

"There were going to be a lot of smiles around the Speedway and the city come Monday morning," Green said. "Attendance was up, and spending around the city was up. Then the green flag dropped and everything changed."

Daly thinks George was deceived.

"I think [George] thought those cars were going to race up until the point they pulled out," Daly said. "If you look deep in the contract between the Speedway and F1, there's a car-count guarantee of 16. That's how many cars have to start the race [to warrant the sanctioning fee], and that's why they all did the warm-up lap."

"F1 [officials] pulled a fast one on Tony George," said Mario Andretti, winner of the 1969 Indianapolis 500 and 1978 F1 Championship. "What they did was unpardonable. Right now, I'm not sure Tony George has a hell of a lot of incentive to bring this race back. He's been burned pretty bad, and if he's to venture back into this, I'm sure he will want some strong guarantees."

Daly thinks George will look to strengthen the language guaranteeing the number of cars that actually race, to assure IMS fans of a competitive race. But that's not all.

George could use this year's debacle to get Ecclestone to loosen the reins on local media and fan access. Local press aren't allowed to cover many F1 events. Most video footage is prohibited outside contracted providers-and even those are limited to protect F1's worldwide image. The number of photographers is severely limited, including the Speedway's own shooters.

For three years, F1 officials have allowed the Speedway to host a "walkabout" the Thursday before the race to look inside team garages and meet a limited number of racers and team personnel. But by NASCAR and Indy Racing League standards, driver access is still extremely limited.

But, Daly said, much more access must be allowed to improve public relations, which Ecclestone himself said this year must be bolstered.

"Tony George needs to convince F1 they need to change the way they do business here," Daly said. "The events of this past race might be the hammer he needs to pound his point home."

Even with George's strengthened leverage, Daly isn't optimistic. But Zak Brown is. Brown, president of locally based Just Marketing, a firm that matches corporate sponsors with motorsports properties, received a call from Ecclestone and Michael Payne, special adviser to F1 and Ecclestone, three days after the USGP.

"It was a rarity to hear Bernie be so hatin-hand," Brown said. "It's the first time I've seen anything like that. He wanted to know what I thought he needed to do to repair the damage between F1 and U.S. sponsors and fans. I think he realized the magnitude regarding what happened and the importance of this market."
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